Policy Factors Affecting The Cost Of Mortgage Life Insurance
Similar to any other insurance policy there are a range of options and factors which can increase or lower the cost of your cover. If you are working with a tight budget you can use these factors to tailor your policy and make it more cost effective.
The Cost Will Increase The More Cover You Need
It’s simple, the more you want a policy to pay out, the higher your premiums will be. For example if you take our 30 year old from above, when we increased the level of cover needed by £100,000, premiums increased from £7.09 to £8.54.
The Longer You Need To Be Protected The Higher The Premiums
The longer you want a policy to be in place the more your premiums will increase. This is due to the fact that you will be older when it ends and therefore be seen as higher risk in the eyes of the insurer.
How long you want your policy for will be determined by when your mortgage comes to an end.
For example if our 30 year old knows they will have paid off the outstanding balance by the time they are age 55, they would select a term of 25 years. If they don’t think it would be until they are 60 they would opt for a 30 year term.
Adding Critical Illness Cover Is Significantly More Expensive
One option you have when it comes to Mortgage Life Insurance is to add Critical Illness Cover to your policy.
By adding this optional extra to your cover, as well as paying out on your death, your policy would pay out if you were to become critically ill with any one of a number of serious illnesses such as:
- Heart Attacks
Where the risk of suffering a serious illness is so much higher than death adding Critical Illness Insurance has a significant impact on the overall cost of your policy.
If you are considering Critical Illness Cover you may want to look at Income Protection as a more affordable way of making sure your mortgage is repaid should you be unable to work due to an illness or injury.
Opting For Level Cover Is More Expensive Than Decreasing Cover
Depending on your mortgage, you might need level or decreasing cover.
Level cover sees the benefit fixed for the life of the policy. It’s therefore often used to cover interest-only mortgages, whereas decreasing cover sees the benefit fall with time, usually in line with a repayment mortgage.
If you opt for level cover you can expect premiums to be around 38% more expensive due to the fact the risk to the insurer remains fixed.
Including Your Spouse WIll Increase The Premiums
If you share a mortgage with someone you may want to take out a Joint Mortgage Life Insurance policy rather than single cover.
Covering two people increases the risk of a claim and is reflected in the cost of the monthly premiums.
When it comes to a joint policy, although two people are covered, it’s important to remember that it will only pay out on the first death.
Because of this it might be worth considering taking out 2 separate policies to ensure both parties are fully covered.
It is often only a little more expensive to take out 2 separate policies than joint cover even though it provides twice the cover.
Opting For Reviewable Or Guaranteed Premiums
When choosing a policy you will have the option of opting for reviewable or guaranteed premiums.
There is a significant difference between the two and the cost of a policy will vary depending on which one you choose.
- Guaranteed Premiums
Initially they tend to be more expensive compared to reviewable premiums but the remain fixed throughout the life of the policy.
- Reviewable Premiums
These tend to start off cheaper, however the total cost is usually higher over the life of the policy relative to plans with guaranteed premiums as the insurer has the right to increase the monthly premium they charge for providing cover.